Global News Round-up: 02/02/23

The European Central Bank (ECB) raised interest rates by 50 basis points (bps) and indicated that more hikes could follow. ECB President Christine Lagarde emphasized that the central bank’s intention to raise rates in March by the same amount is strong, but not irrevocable. Lagarde said that the risks to inflation and growth have become more balanced, but the ECB is not done in bringing inflation to 2%. Meanwhile, the Bank of England (BOE) also raised interest rates by 50 bps and BOE Governor Andrew Bailey noted that although the bank sees a “turning of the corner” on inflation, it has to be cautious before shifting gears.

The interest rate hikes by the ECB and BOE resulted in a drop in the euro and pound and a surge in stocks and bonds. US stocks, including the S&P 500 and the Nasdaq 100, added to their gains as speculation grew that the Federal Reserve’s tightening cycle may be near its peak. Risk assets also saw a boost as Fed Chairman Jerome Powell indicated progress in the central bank’s battle against inflation. Yield on 10-year German government bonds saw a major drop as traders bet that the ECB will slow down its pace of interest rate hikes.

On the earnings front, Shell posted a record profit of almost $40 billion last year on the back of surging gas prices. The company also increased shareholder payouts by $4 billion. Meanwhile, Meta’s stock saw a spectacular turnaround after the company announced that it will become leaner and more decisive. Other tech giants, including Amazon, Apple, and Alphabet, will report results later today. Investors will now shift their focus to these big-tech earnings as they are likely to set the tone and direction of markets in the near term.

In the light today is:

The Bank of England (BOE) is projecting a 0.5% contraction of the UK economy this year, similar to the International Monetary Fund’s (IMF) 0.6% contraction forecast. BOE Governor Andrew Bailey stated that the difference is in the growth rate following this year, with the IMF having a higher projection than the BOE. The BOE expects another 0.25% decline next year, while the IMF projects a 0.9% growth. The BOE attributes the difference in projections to the pessimism in the labor market due to many people dropping out of the workforce during the pandemic, the UK’s dependency on gas, and the speed at which interest-rate increases feed into the economy. BOE Deputy Governor Ben Broadbent believes these factors won’t endure forever and the economy will recover in the future.

Before you swicth off for the day:

Gautam Adani’s wealth has fallen $52 billion in just six trading days after shares of his conglomerate, Adani Group, plummeted following a Hindenburg Research report alleging fraud. The downfall is among the most severe in terms of scale and speed since Bloomberg began tracking billionaires in 2012. Adani’s wealth was $150 billion in September and has now dropped to $61 billion. The report flagged a large concentration of insider share ownership, rampant use of leverage and valuations that were elevated by just about every measure. Adani Group utilized margin loans to fund its ambitions, but had to put up about $300 million worth of shares last week to maintain its collateral cover on a loan made by a group of banks. Units of Credit Suisse Group and Citigroup have stopped accepting some Adani securities as collateral for margin loans. India’s central bank has asked lenders for details of their exposure to the conglomerate.

Disclaimer: The information contained in this article is based on publicly available data and is for informational purposes only. It should not be considered as financial advice and does not guarantee any results. Readers should conduct their own research and seek professional advice before making any financial decisions